NYC salary transparency law tests if employers nationwide can keep pay secret

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NYC salary transparency law will test whether employers nationwide can keep pay secret

A labor market of 8.5 million could have a domino effect on whether job ads disclose salaries.

NYC salary transparency law will test whether employers nationwide can keep pay secret
The News

A new pay transparency law goes into effect in New York City on Tuesday, requiring workplaces with four or more employees to list salary ranges on job postings. It is similar to recent laws that went into effect in Colorado, Washington and California.

The goal of these laws is to close pay disparities among workers, including among women, older workers and racial groups, which data has shown are frequently underpaid relative to male, younger or white peers. Some research suggests that the laws can reduce the divides. Other research, though, has shown that transparency laws can lead to lower wages for individual workers.

The New York law is significant because of the sheer size of the area. When Colorado passed its pay transparency law in January 2021, a noticeable number of large, remote companies stopped recruiting in the state. But to be competitive in the hiring market, remote companies can’t opt out of posting jobs in a city of 8.5 million people, potentially setting the stage for more companies nationwide to post salary ranges regardless of laws in their state.

Experts say this could be one of the biggest falling dominoes of pay transparency laws passed across the country.

The Context

Salary disclosure laws began to pass in states before the onset of the covid-19 pandemic, but since then, workers have commanded more power in the marketplace, seeing wages rise as employers scrambled to fill jobs amid shortages. But as the economic outlook dampens and employers make decisions amid rising inflation and a possible recession, it’s less clear how much power workers will gain from the new laws.

BUSINESS LENS

Early data on transparency law outcomes is murky

Research findings are murky on what pay equity laws mean for workers, employers and the labor market as a whole.

Early data from Recruitonomics, an employment data research group, looked at Colorado’s job market and labor force participation compared with neighboring Utah from 2020 through the end of 2021 to study the effect of Colorado’s law. The findings? Colorado had a higher increase in its labor force participation rate, but the number of jobs listed on the recruiting site Indeed “fell 8.2% in Colorado compared to Utah.”

Recruitonomics’ interpretation of the data was that “effectively, those out of the workforce felt better about applying to jobs in a jurisdiction that mandated pay ranges, and employers were discouraged from posting jobs in Colorado given the additional friction. ”

But what the data from Colorado means for New York, or other larger labor markets like California, which is implementing its own pay transparency law in 2023, is not entirely clear.

As larger labor markets institute salary transparency, it will be harder for companies to exclude them from nationwide job searches. And even though remote work has expanded massively in the pandemic, most employment does not happen remotely.

One study by Cullen and Bobak Pakzad-Hurson published by the Harvard Business School found that pay transparency can reduce the individual bargaining power of workers, and their model found that such laws led to an overall 2 percent decline in wages.

— Matthew Zeitlin

EQUITY LENS

It’s unclear what disclosure laws will mean for gender, race and age pay gaps

Given that this wave of pay transparency laws is a relatively recent phenomenon, there is limited research on to what extent they close pay gaps among genders, racial groups and age groups.

So far, research suggests that pay transparency laws can help reduce the gender wage gap, which has remained stable in recent years but narrowed for young workers, according to the Pew Research Center. In 2020, women earned 84 percent of what men earned, with even greater disparities for women of color.

  • Over the course of two decades, pay transparency reduced the gender pay gap for participating U.S. academics by up to 50 percent, according to the Nature Human Behavior study.
  • On average, women in the federal government, where pay rates are public, earned 93 percent of what men earned in 2017.
  • A 2006 wage-transparency law passed in Denmark reduced the gender pay gap by about 2 percentage points, primarily by slowing wage growth for male employees, according to a study published this year in the Journal of Finance from the American Finance Association.

But transparency laws alone may not be enough to close wage gaps for women and people of color.

Buffer, a social media company with a pay transparency policy, actually saw its gender pay gap grow after it implemented its pay transparency policy. This was, the New York Times reported, largely due to the relatively few women in leadership and engineering positions. After the company underwent a diversification program for these roles, it saw its gender pay gap shrink back down to 5 percent.

There may also be some unintended consequences from pay transparency laws to be accounted for. For instance, some employers began offering employees other rewards to motivate them and ensure performance and satisfaction, the Harvard Business Review (HBR) reported. Evidence suggests that this shift toward less-visible benefits may come at the cost of gender pay equity, the authors, who recently published their study in the Academy of Management Journal, wrote in HBR.

— Anna Deen

POLICY LENS

Pay transparency and fears of an economic downturn

New York’s city council approved the transparency law late in 2021, when the U.S. was thick in the “Great Resignation” that led many dissatisfied workers to quit their jobs. Some Starbucks employees formed their first union in December of 2021 and workers at Amazon in the spring of 2022 — employees at other high-profile corporations followed suit. White-collar employees, who had shifted to working from home during the pandemic, were making a case that they continued to work productively even while remote. New York’s pay transparency law could give workers more leverage in salary negotiations.

But today, fears of an economic downturn have dampened much of the optimism that characterized 2021. An October workforce study released by LinkedIn found that hiring has decreased somewhat from this time last year, and the share of remote jobs posted on the platform fell from 20 percent this February to 14 percent in September. Workers were also less likely to feel they could improve their financial situations in the coming months.

— Maggie Severns

LEGAL LENS

How pay transparency will be enforced

If the New York City Commission on Human Rights determines that an employer has violated the rule, it could “pay civil penalties of up to $250,000,” the commission said.

But officials say they will offer a warning first, and any employer who complies within 30 days will be considered in compliance and no fine will be issued. The exact fine varies by jurisdiction.

In California, the fine is $100 to $10,000 for a second violation, and in Colorado, the fee range is $500 to $10,000. Colorado, whose laws have been in place since 2021, has had only three workplaces fined as of July.

Prior to the law’s enactment in New York, analysts were wary of some companies posting intentionally large salary ranges to cheat the mandate and still encourage salary secrecy and negotiations. “The suspect is between 5-foot-1 and 6-foot-8,” joked Andrew Flowers, the director of Recruitonomics, in September.

Already, examples of this workaround have been noted by job seekers: The salary range of a client service officer role with Citi is listed between $0 and $2 million, and a New York Post reporting position is said to pay between $50,000 and $145,000.

“It’s possible that there’s going to be some weird game theory that happens here,” Flowers previously told Grid.

— Matthew Zeitlin, Christian Thorsberg

Thanks to Lillian Barkley for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.

  • Maggie Severns
    Maggie Severns

    Domestic Policy Reporter

    Maggie Severns is a policy reporter for Grid covering complex policy stories and major headlines.

  • Anna Deen
    Anna Deen

    Data Visualization Reporter

    Anna Deen is a data visualization reporter at Grid.

  • Christian Thorsberg
    Christian Thorsberg

    Reporter

    Christian Thorsberg is a reporter for Grid.

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